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Minimum Alternate Tax

akhila bandaru (employee) (58 Points)

07 October 2008

I also have another question about MAT. The procedure given is, to calculate book profit under 115JB and then calculate profit under the Income Act and then take the difference.

My question is why should we add back expenses like Depreciation, Income Tax, Wealth Tax etc and why should we delete brought forward losses etc. I am quite confused. Should I mug up this provision ? Is there any other way to understand this provision ? Please help.

Thanks in advance

Akhila

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8 Replies

S.Srinivasaraghavan (Chief Financial Officer and Co) (11318 Points)
Replied 07 October 2008

If you understand the principles you need not mug up.

Section 115JB is showing how to compute true book profits.

The reason for adding back (a)payment ofIT, (b)transfer to reserves, (c)provision for meeting unascertained liabilities, (d)subsidiary company losses, (e)payment of /provision for dividends, (f)expenditure related to exempted incomes and (g) depreciation is to the profit carried as per profit and loss account is to arrive at the book profits, before the above mentioned debits.

It also allows you to deduct certain amounts from book profits like amount credited fro reserves, exempted incomes, the depreciation (excluding depreciation on revaluation of assets) and so on.

The above are items which are to be excluded to calculate true book profits.

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amit (article) (38 Points)
Replied 07 October 2008

Originally posted by :S.Srinivasaraghavan

Dear Sir,

Sorry to say, but what u have stated is a I T law describe in the Act not the principle which we require to understand this MAT. if possible give the principle funda to understand this provision.

if possible mark ur answer to me at " amitjadu @ rediffmail.com"

If you understand the principles you need not mug up.
Section 115JB is showing how to compute true book profits.
The reason for adding back (a)payment ofIT, (b)transfer to reserves, (c)provision for meeting unascertained liabilities, (d)subsidiary company losses, (e)payment of /provision for dividends, (f)expenditure related to exempted incomes and (g) depreciation is to the profit carried as per profit and loss account is to arrive at the book profits, before the above mentioned debits.
It also allows you to deduct certain amounts from book profits like amount credited fro reserves, exempted incomes, the depreciation (excluding depreciation on revaluation of assets) and so on.
The above are items which are to be excluded to calculate true book profits.

akhila bandaru (employee) (58 Points)
Replied 08 October 2008

Srinivas,

Thank you for the details on the calculation of MAT. I hope I will not have tough time answering the problems on MAT. Will read through the provision once again.

Regards,

Akhila